Committee Recommends Ditching Identification Provisions on Virginia Credit Reporting Bill

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A report prepared by an ad hoc committee formed to study a Virginia bill that would affect commercial credit reporting in the state suggested removing some of the legislation's most controversial provisions, including a requirement that commercial credit reporting agencies identify the source of so-called "negative information" to the subject of a report.

The committee, formed within the Virginia Small Business Commission to study House Bill 2198, presented the report to the full Commission at its meeting this week. After briefly introducing and submitting the report, the Commission urged proponents and opponents of the bill to continue their work on the legislation with the ad hoc committee's report in mind. State Senator and Commission Chair Frank Ruff, Jr. (R) urged the bill's sponsor, Delegate Michael Watson (R), to be prepared to compromise on any final legislation that emerges from the debate over HB 2198.

Recommendations in the ad hoc committee's report indicated a great degree of trust in the commercial credit reporting world's existing self-regulatory format, wherein subject companies can already view their report should they like to, and errors are rare and inaccuracies are quickly addressed. "We agree that while both sides have their own unique concerns, there are procedures in place within the credit reporting industry to provide an avenue for businesses to contest erroneous information," said the report. "While this system appears to have its own flaws, we must defer to the individual commercial credit reporting agencies (CCRAs) to conduct their operations in a manner appropriate to their industry."

Debate over HB 2198 Continues at Recent Virginia Small Business Commission Meeting

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The Virginia Small Business Commission continued its study of House Bill 2198 last week with the meeting of an ad hoc committee specifically formed to study the legislation, which would affect commercial credit reporting in the Commonwealth. NACM was in attendance, providing the committee with a necessary perspective from commercial credit professionals that has otherwise been absent from the debate.

Led by Small Business Commission civilian members Owen Van Syckle and Robert Marcus, the meeting began with a discussion of the bill's intent by Delegate Michael Watson, the author and sponsor of HB 2198. Watson, along with two representatives from a local Virginia business that support the bill, noted that the legislation was designed to address a perceived gap in the rights of businesses to identify the source of so-called "negative information" on the commercial credit report. He said that businesses are denied the ability to improve their credit by the currently anonymous way that historical payment information about them is displayed in their credit report.

Richmond-area NACM member Doug Strobel of Titan America, who provided vital testimony at the Small Business Commission's last hearing in June, again offered the perspective of a trade supplier, explaining how he uses commercial credit reports and how he conducts an assessment of a potential customer's creditworthiness. Strobel also discussed how important credit information is to a credit report, and how such reports are integral to his ability to make a fast, accurate credit decision, once again making the case that HB 2198 could limit the amount of information available on businesses in Virginia by requiring commercial credit reporting providers to identify the source of "negative information" on a report.

Virginia Small Business Commission Schedules New Hearing on Commercial Credit Reporting Bill

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The Virginia Small Business Commission scheduled another meeting later this month to discuss the future of House Bill 2198, which could affect the exchange of commercial credit information on businesses in the commonwealth.

According to the Commission's website, the next meeting will take place on August 29 in Richmond, VA. While no agenda has been made available to the public as yet, NACM has been in contact with Commission staff members who have made it clear that the meeting will consist of the HB 2198 workgroup, a group of proponents and opponents of the bill that was informally established at the Commission's last meeting in June.

NACM has opposed HB 2198 since its introduction and will attend the hearing on August 29 to continue to ensure that the interests of unsecured trade credit grantors are considered by Virginia legislators. The results of the workgroup's efforts in August will be presented to the full Small Business Commission at their next meeting on September 10.

VA Small Business Commission Makes No Recommendation on HB 2198, Urges Parties to Work Together on Legislation

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At its meeting on June 26, the Virginia Small Business Commission made no recommendation about whether to support or oppose House Bill 2198, which would affect commercial credit reports in the commonwealth. It did, however, urge both parties in favor of and against the bill to work together to find common ground to address a perceived problem regarding the rights of the subject of a commercial credit report.

NACM has opposed HB 2198 since its introduction and was on hand at the meeting to make the case against the bill's identification provision. This measure would require commercial credit reporting agencies to make the source of a certain piece of information on a commercial credit report known to the subject of that report, if the information was considered "negative," a term the bill fails to define.

Virginia Delegate Michael Watson (R), who originally introduced HB 2198, was on hand at the meeting to make his case in favor of the bill, supported by a number of his colleagues from the House of Delegates. Specifically, Watson framed the bill as fundamentally pro-business and drew comparisons to the rights of consumers as they pertain to accessing and amending their credit reports, arguing that Virginia businesses should have the same rights.

NACM's Response to Associated Press Article about Credit Reports and Small Businesses

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The following is NACM's official response to an Associated Press article about credit and small businesses that ran in several mainstream media outlets last week.

Dear Associated Press Editors,

An AP article that ran in several news outlets, titled "How small businesses can avoid loan rejections" and written by AP small business reporter Joyce Rosenberg, had good intentions and a considerable amount of important information for small businesses seeking to improve their commercial credit standing. However, while it focused on the relationship between small businesses and their banks, it completely ignored the important relationship between small businesses and their suppliers. It is this relationship that defines the commercial credit score for all businesses.

Further, the article missed the fact that Dun & Bradstreet Credibility Corp. (DBCC), whose CEO provided all of the article's quotations, is a by-product of a greater problem regarding consumer and commercial credit. The problem, in short, is that not many people recognize the vast differences between how consumer credit and commercial credit are extended, as well as how consumer creditors and commercial creditors are assessed for creditworthiness.

Regrettably the article failed to note that DBCC's primary product is a credit monitoring service which is sold to businesses for a fee. It's a carbon copy of countless other credit monitoring services offered to consumers by credit bureaus, financial institutions and other companies. While both consumers and businesses can monitor their own credit reports and address discrepancies for free, what DBCC's business model represents is an attempt to take a consumer product, and apply it in a commercial setting.

Virginia Bill Could Affect Commercial Credit Reports

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The current version of a bill in the Virginia House of Delegates, HB 2198, would require commercial credit reporting agencies to identify their sources of "negative information" when they provide a copy of a report to its subject. This would mean that Virginia buyers would know the identities of the sellers that shared any of their negative payment history with a commercial credit reporting agency should they choose to dispute the information on their report.

However, according to the office of Delegate Michael Watson (R-James City/York Counties), the bill's chief patron, and other industry sources, an amendment to the bill that would eliminate this requirement is forthcoming. The text of such an amendment has yet to be made public.

Still, the bill would also require agencies to provide Virginia businesses access to a free annual credit report and would allow the subject of a commercial report to dispute parts of their report that they believe are inaccurate. After receiving the subject's complaint, the commercial credit reporting agency would have 30 days to either delete the statement or include a note in the report saying that the subject of the report has disputed a particular piece of information.

Few Satisfied by Last Minute Fiscal Cliff Deal

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A deal was reached to ameliorate the effects of the United States going over the so-called "fiscal cliff" on January 1, but few seem satisfied with the legislation.

The bill, dubbed the American Taxpayer Relief Act of 2012, initially passed through the Senate in the early hours of 2013 by an overwhelming 89-8 vote. It faced a less certain future in the House of Representatives, but the bill eventually overcame a Republican party split to successfully emerge from the lower chamber in a 257-167 vote.

Even the legislation's supporters framed it as a stopgap measure that did what was necessary to neutralize the cliff's automatic spending cuts and tax increases, which took effect on January 1, but did little more than that. "There's more work to do to reduce our deficits, and I'm willing to do it," said President Barack Obama. "But tonight's agreement ensures that, going forward, we will continue to reduce the deficit through a combination of new spending cuts and new revenues from the wealthiest Americans."

According to the Congressional Budget Office (CBO), the Act will reduce the country's deficit by $737 billion, mainly due to a tax increase on individuals earning more than $400,000 a year and households earning $450,000. While the bill also makes $107 billion worth of spending cuts, Republican leaders promised substantially greater reductions in the future, while trying to shift the blame to the White House when possible. "With the revenue piece settled, Washington must now turn to solving the rest of the fiscal cliff—the out-of-control spending that has led to record debt and deficits under President Obama," said House Ways and Means Committee Chairman Dave Camp (R-MI).

ABI Chapter 11 Commission: 1978 Bankruptcy Code in Need of Modernization

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An American Bankruptcy Institute (ABI) Commission has found that the current Bankruptcy Code, enacted in 1978, is in need of modernization.

In a conference call this week, ABI examined the progress of their Commission to Study the Reform of Chapter 11 and discussed the ways in which the 1978 Code is outdated. Such issues were identified by practitioners and academics who participated in the five public hearings held by the Commission throughout 2012.

"The community recognizes that the Bankruptcy Code is strong and durable and works, but, as I've often said, it's somewhat like using a typewriter," said Commission Member Richard Levin of Cravath, Swaine & Moore LLP. "It could be improved, it could be more efficient and more balanced in many ways, while providing the kinds of protections that creditors and debtors alike need to preserve jobs and preserve value."

Justice Department Takes Aim at Attorney Fees in Large Chapter 11 Cases

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The U.S. Department of Justice's Trustee Program is expected to promulgate new disclosure rules this month for law firms regarding the fees they charge debtors in Chapter 11 bankruptcy cases.

Professional fees in these cases have ballooned in recent years, leaving many creditors wondering how debtors' attorneys can bill such exorbitant costs to firms that are already in financial straits. Among the rules expected to be proposed by the Trustee Program are provisions that would require firms to disclose rate increases and justify them as cases go on, as well as measures that require firms to prove that their rates are aligned with other members of their industry.

The actual debtor's cost for a Chapter 11 bankruptcy filing has long been criticized but was thrown into the public eye in the wake of the liquidation of Lehman Brothers. Court filings in March of this year revealed that the holding company paid a whopping $1.6 billion to lawyers, accountants, advisers and other professionals over the course of their case.

Supreme Court Upholds Credit-Bidding Rights

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In a quicker-than-expected turnaround, the Supreme Court ruled unanimously to uphold the rights of secured creditors in Chapter 11 bankruptcy-related assets sales.

The high court noted that a Chapter 11 "cramdown" plan could not be confirmed if a secured lender, often a bank, is denied the right to use debt owed to them at an assets auction in lieu of cash. The timing comes as a surprise, as a decision was not expected for several weeks, as does the unanimous vote (with Justice Kennedy not taking part in the decision) since Chief Justice Roberts expressed the importance of "the specific over the general" when analyzing the debtors' point of view in a late April hearing of arguments regarding differing credit bidding decisions in the lower courts.

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